Franklin Advisers, Franklin Templeton agree to SEC penalties of $325,000
The firms exceeded the 10% cap on a fund manager investing in another investment company
The Securities and Exchange Commission has settled charges against Franklin Advisers, a registered investment adviser, for breaching its fiduciary duty to its client funds and failing to follow its own policies and procedures. It also settled charges against Franklin Advisers and Franklin Templeton Investments Corp., another RIA that’s based in Toronto, for causing client funds to violate investment limitations. Both RIAs are subsidiaries of Franklin Templeton.
Without admitting or denying the SEC’s findings, Franklin Advisers consented to a cease-and-desist order, a censure and a civil penalty of $250,000, and Franklin Templeton Investments consented to a cease-and-desist order and a civil penalty of $75,000.
According to the SEC’s order, from October 2013 to November 2015, both Franklin Advisers and Franklin Templeton Investments purchased certain exchange-traded funds on behalf of client funds, causing the funds to exceed limits that prohibit the investment of more than 10% of an investment company’s assets in other investment companies or acquiring in excess of 3% of the outstanding shares of an investment company.
The SEC’s order also found that Franklin Advisers sold shares of certain ETFs held by its client funds in order for the funds to come into compliance with the limitations, causing certain client funds to suffer more than $2 million in losses.
Franklin Advisers did not reimburse its client funds for these losses, despite its trade error policy normally providing otherwise, the SEC said in a release. Franklin Advisers then failed to disclose to the client funds’ board of directors the losses incurred, Franklin Advisers’ decision not to reimburse the losses, the associated conflicts of interest, or the deviation from Franklin Advisers’ trade error policy.
The SEC order notes that after the agency began its investigation, Franklin Advisors reimbursed the funds for the losses, including interest.
“Franklin Templeton cooperated with the SEC’s investigation and has implemented additional internal controls relating to the investment limit requirements,” a spokesperson for Franklin Templeton said in an email. “In agreeing to the settlement, Franklin Templeton neither admitted nor denied the findings made by the SEC in the Order. Franklin Templeton is pleased to conclude this matter.”
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